Experts told Arabian Business that the UAE is "ahead of the curve" in regulating bitcoin and digital assets, predicting a legal framework within five years.
With digital asset valuations fluctuating, experts warned that bitcoin regulation was necessary for long-term viability.
In the UAE, Binance's Global Head of Market Surveillance Vladimir Contreras and Chen Arad, co-founder and CXO of Solidus Labs, called for a strong regulatory framework to protect investors and the market.
UAE making a lot of progress in crypto
Arad thinks it will take five years to create a digital asset regulatory framework in the Gulf, whereas Contreras thinks it may take three.
“With the UAE's pace, three years. Contreras told Arabian Business that the business will have more clarity and a suitable framework.
It's hard to say, but if I had to guess, I'd say five years. "After this bull market, and with the really impressive regulatory and industry innovation that is happening here, then it's going to be a massive industry in the UAE and it will become a very, very important hub for crypto," Arad added.
Contreras disagrees with the idea that crypto and digital asset regulation will deter investment. Clear standards can reassure investors, making the country more attractive for investment.
Contreras said the UAE and industry are ready for regulation. “What the authorities have done here in recent years is great and will benefit the economy.”
His comments come as the crypto sector recovers from a wave of bankruptcies and failures in 2022, which sparked calls for better regulation, especially in the US.
The industry craves regulatory clarity. "The UAE is ahead of the curve," Arad added.
“We [Solidus Labs] just put out a detailed compliance playbook for how companies can use our solution to comply with regulation, and to do that, there needs to be clear regulatory requirements, which is not given in a lot of other places.”
He noted that regulatory clarity in decentralised finance is continuously evolving.
“It’s a dynamic industry. It’s not like authorities will issue requirements and everything will be clear.”
Too many cooks?
Experts say overregulation is the largest crypto market regulation issue.
“Too many regulatory authorities are difficult. “It's hard when you don't know where to go,” Contreras added.
Innovation will shape UAE regulation, I believe. Remember VARA, SEA, and FSRA. Many regulations. I think they should work together to implement something that applies to the full UAE, because right now it doesn't.”
Crypto regulation is difficult due to its decentralisation. Multiple regulatory authorities can be confusing, because some cannot enforce regulations on people from other countries.
The merging of on- and off-chain transactions and the rise of decentralised finance (DeFi) worsen this issue. While present regulatory coverage may be sufficient, authorities must have the capacity to act and enforce legislation to preserve the crypto environment.
“We need industry collaboration to close this gap,” Contreras said.
He added the UAE market is well-regulated, so market abuse and insider trading can be prevented.
“The policies and regulations are there, but companies just need to follow them and collaborate with the regulators again and also be open-minded and adaptable to changes in the industry because it’s an evolving industry with so many things happening and so many products.
Monitoring market manipulation in one market might be difficult. Market issues vary. How to close that gap? Technology helps there. We need holistic systems to close the gap.”
Arad agreed with Contreras that on- and off-chain components make market misuse difficult to understand.
Digital assets are the first asset class with non-exchange-native assets. That implies anyone may create an exchange anywhere and trade Bitcoin effortlessly on-chain or off-chain.
Solidus Labs' market abuse monitoring system faces a "complex reality" because 80% of market activity is off-chain.
“It’s critical to have crypto native systems that can unify and understand risk both across on and off chain that are utilising new technologies like machine learning to not only look for forms of behaviour that we know from traditional markets like wash trading, spoofing, and pump and dumps, but also we’re constantly looking for new kinds of anomalies that are unique to crypto,” Arad said.
“In addition to just following regulation and seeing what your regulator requires—usually a comprehensive, holistic, thoughtful programme that is constantly updated, etc.—you also just need to be proactive, and really look for crypto native tools that address the crypto native challenges.”